Interest & Remuneration Calculator

    Professional tax planning utility for Partnership Firms to calculate interest on capital and partner remuneration under Section 40(b).

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    Tax Plan Summary

    Complete the details and click Calculate to see results.

    Section 40(b) Remuneration Rules

    • • First ₹3 Lakhs of Book Profit: 90% or ₹1,50,000 (whichever is more)
    • • Balance Book Profit: 60%
    • • In case of loss: Max ₹1,50,000 allowed

    Interest on Capital Rules

    • • Max interest allowed: 12% p.a.
    • • Must be authorized by the Partnership Deed
    • • Calculated on a monthly product basis or as per Deed

    Understanding Section 40(b)

    Section 40(b) of the Income Tax Act, 1961 outlines the conditions under which a partnership firm (or LLP) can claim tax deductions for interest on capital and remuneration paid to its partners. Only remuneration paid to "working partners" and interest paid as authorized by the partnership deed are allowed as deductions.

    What is Book Profit?

    For the purpose of calculating the maximum allowable remuneration, 'Book Profit' means the net profit as shown in the profit and loss account, computed in accordance with the Income Tax Act, increased by the remuneration paid or payable to all the partners of the firm if such sum has been deducted while calculating the net profit.

    Taxation in the Hands of Partners

    • Remuneration and Interest: Any salary, bonus, commission, remuneration, or interest received by a partner is taxable as "Profits and Gains of Business or Profession" in their personal tax return, but only to the extent it was allowed as a deduction to the firm.
    • Share of Profit: The share of profit received by a partner from the firm is completely exempt from tax under Section 10(2A), as the firm has already paid tax on this profit.

    Frequently Asked Questions

    Can a sleeping partner get remuneration?

    No, as per Section 40(b) of the Income Tax Act, remuneration can only be paid to working partners. If any remuneration is paid to a non-working (sleeping) partner, it will not be allowed as a deduction to the firm.

    What if the partnership deed does not mention the interest rate on capital?

    To claim a deduction for interest under Section 40(b), the interest payment must be explicitly authorized by and in accordance with the partnership deed. Without such authorization, no deduction is allowed, even if the partners agree verbally.